A company purchased a class 8 asset (there were no disposals).If the asset cost $20,000, had an estimated salvage value of $5,000, using the declining balance method with an allowable rate of 20%, the allowable CCA in the first and second years would be, respectively
A)$1,500 and $2,700.
B)$2,000 and $3,600.
C)$2,000 and $4,000.
D)$3,000 and $2,400.
E)$4,000 and $4,000.

Question

Quizplus · Accepted Answer

First, we need to calculate the CCA rate using the declining balance method with a 20% allowable rate:

Year 1: 20% x $20,000 = $4,000
Year 2: 20% x ($20,000 - $4,000) = $3,200

However, we need to take into account the estimated salvage value of $5,000. This means that in Year 2, we can only claim CCA on the remaining balance of ($20,000 - $4,000 - $3,200 - $5,000) = $7,800.

Therefore, the allowable CCA in the first and second years would be:

Year 1: $4,000
Year 2: $3,600 ($3,200 + 20% x $7,800)

The answer is B), $2,000 and $3,600.

A Company Purchased a Class 8 Asset (There Were No